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The geography of Medicare

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  • David M. Cutler
  • Louise Sheiner

Abstract

There is a great deal of geographic variation in Medicare spending. For example, while the average Medicare cost per beneficiary was around $5200 in 1996, Medicare spending, adjusted for differences in regional prices and demographic composition, was about $8000 per person in Miami, but only $3500 in Minneapolis. In this paper, we explore the source of this variation. We find that a substantial amount can be explained by differences across areas in the health of the elderly population. This finding suggests that some of the geographic variation in Medicare spending is efficient. But even accounting for differences in the health of the population, significant variation remains. We have been able to explain some of the remaining variation. The strongest factors are supply variables: for-profit hospitals and specialist physicians both increase Medicare spending. If these factors are exogenous, public policy may want to consider the supply of medical services more than it currently does. We do not find that expensive places spend a disproportionate amount on those near death.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-18.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-18

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Keywords: Medicare;

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References

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  1. Frank A. Sloan & Gabriel A. Picone & Donald H. Taylor, Jr. & Shin-Yi Chou, 1998. "Hospital Ownership and Cost and Quality of Care: Is There a Dime's Worth of Difference?," NBER Working Papers 6706, National Bureau of Economic Research, Inc.
  2. David M. Cutler & Louise Sheiner, 1997. "Managed Care and the Growth of Medical Expenditures," NBER Working Papers 6140, National Bureau of Economic Research, Inc.
  3. Laurence C. Baker & Martin L. Brown, 1997. "The Effect of Managed Care on Health Care Providers," NBER Working Papers 5987, National Bureau of Economic Research, Inc.
  4. Skinner, Jonathan & Fisher, Elliott, 1997. "Regional Disparities in Medicare Expenditures: An Opportunity for Reform," National Tax Journal, National Tax Association, vol. 50(3), pages 413-25, September.
  5. Cutler David M. & Sheiner Louise, 1998. "Managed Care and the Growth of Medical Expenditures," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-41, January.
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Cited by:
  1. Brandon Roberts & Irving Hoch, 2007. "Malpractice litigation and medical costs in Mississippi," Health Economics, John Wiley & Sons, Ltd., vol. 16(8), pages 841-859.
  2. Datta, Anusua & Vandegrift, Donald, 2011. "Effects of welfare reform and the state children’s health insurance program on medicaid and total health expenditures," MPRA Paper 36486, University Library of Munich, Germany.
  3. Louise Sheiner, 2013. "Why the geographic variation in health care spending can't tell us much about the efficiency or quality of our health care system," Finance and Economics Discussion Series 2013-04, Board of Governors of the Federal Reserve System (U.S.).
  4. Craig William Perry & Harvey S. Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," NBER Working Papers 8490, National Bureau of Economic Research, Inc.
  5. Boris Augurzky & Thomas Kopetsch & Hendrik Schmitz, 2013. "What accounts for the regional differences in the utilisation of hospitals in Germany?," The European Journal of Health Economics, Springer, vol. 14(4), pages 615-627, August.
  6. Brandon Roberts & Irving Hoch, 2009. "Malpractice litigation and medical costs in the United States," Health Economics, John Wiley & Sons, Ltd., vol. 18(12), pages 1394-1419.
  7. Dunn, Abe & Shapiro, Adam Hale & Liebman, Eli, 2013. "Geographic variation in commercial medical-care expenditures: A framework for decomposing price and utilization," Journal of Health Economics, Elsevier, vol. 32(6), pages 1153-1165.
  8. Victor R. Fuchs & Mark B. McClellan & Jonathan S. Skinner, 2004. "Area Differences in Utilization of Medical Care and Mortality among U.S. Elderly," NBER Chapters, in: Perspectives on the Economics of Aging, pages 367-414 National Bureau of Economic Research, Inc.
  9. Sherman Folland, 2005. "The Quality of Mercy: Social Health Insurance in the Charitable Liberal State," International Journal of Health Care Finance and Economics, Springer, vol. 5(1), pages 23-46, January.

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